Shipping Line alliances mean less choice, bargaining power for shippers

Posted by Daily Shipping Times on 15-05-2017        Tweet

LONDON: The consolidation of the major East-West Container Shipping Line alliances from four into three is designed to improve operational efficiency and profitability for the carriers through their new vessel sharing agreements. However, the move is likely to result in fewer options and less competition for shippers, especially when negotiating service contracts.

The OCEAN Alliance, for example, includes 41 loops with a deployment of 323 containerships, while THE Alliance will offer 31 services with a collection of 240 vessels.

The new mega alliances have resulted in fewer service loops with fewer direct port pairs, which may mean shippers will have to transship more or rely on third-party logistics providers to help them get their cargo overland to and from the right ports.

From the carriers' perspective, the bigger ships are more efficient to operate. However, this currently doesn't translate to a similar outcome when they arrive in ill-equipped ports, like those in the United States. Carriers and their NVO partners need compensatory rates for their services in order to operate their businesses profitably, but this probably won't happen any time soon. Even with fewer alliances and less direct competition, rate increases will be slow in coming as long as the carriers continue to add capacity to an already bloated market.

Shippers will continue to benefit from low container freight rates for the time being, however, they will likely experience increases in their total shipping costs due to the wrinkles that manifest themselves as the surrounding links in their supply chains adjust to the alliance realignment, the report said.

These extra costs extend beyond the scope of container freight rates to drayage, inland and last-mile.